The Overnight Report: Department Of Youth

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By Greg Peel

Directionless

If the futures were expecting more of a negative response to the Melbourne outbreak in closing down -35 points yesterday morning, it didn’t eventuate. The ASX200 was down -25 from the open, but only for six minutes.

The release of the March quarter construction work numbers appeared to provide a bit of a boost late morning, but the index topped out up 20 points before sliding towards the close. It was down -10 at the bell, but down -22 when market-on-close orders were squared out.

Residential construction was expected to be strong in the March quarter but a 5.1% gain exceeded expectations, split 4.1% on new houses and 10.8% on renovations, to mark the strongest quarter in six years. By contrast, commercial building continues to fall, down -5.6% to the lowest level in five years, with developers reluctant to pursue office, retail and tourism-related construction post-covid.

Public sector engineering rose 2.2%, suggesting a run-rate short of ambitious federal and state infrastructure goals. Total construction overall was 2.4% higher, having fallen -1.5% in the December quarter.

The shutters are coming down on state borders once more, but yesterday I suggested perhaps the market has become inured to these occasional outbreaks. Webjet ((WEB)), to pick one stock, actually rose 0.6%.

Otherwise, a small bounce in iron ore and a rally in gold to almost US$1900/oz did nothing for the materials sector (-1.1%), with big miners being sold once more. The Singapore exchange was closed for a holiday yesterday, so no change in the iron ore price this morning.

Healthcare had been a rotation destination earlier in the week, but it turned tail yesterday (-1.0%). Property was Tuesday’s sector winner. It fell -0.9%. Utilities was the only sector to close in the red on Tuesday. It rose 0.5%.

I think we can get the picture here. Just to underscore the lack of direction, the futures are up all of 3 points this morning.

Among individual stocks, ALS Ltd ((ALQ)) jumped 12.8% on its earnings result and dividend to top the index charts.

Outside of the index, chop-shop conglomerate AMA Group ((AMA)) jumped 10.5% on an update highlighting that when more commuters are driving and shying away from public transport, and more travellers are on the roads and not in planes, they do tend to bang into each other more.

The biggest index loser on the day was Kogan ((KGN)), which is that latest up again, down again stock after having taken two big dips recently on unmoved inventory and higher costs. It fell -5.7%. Probably be up today.

Today sees March quarter private sector capex data, which also includes capex intentions. These give us a glimpse into the future, rather than months-old numbers, but by the same token are not binding.

It’s a Small World

It was a pretty dull old day to mark the 125^th anniversary of the Dow. All the action was elsewhere.

On a day when the broad market index of top 500 stocks managed only a 0.2% gain, aided by 0.6% for the Nasdaq, the Russell 2000 small cap index rose 2.0%.

After surging in late 2020, the Russell has been largely wallowing since February as investors chopped back and forward between cyclicals and growth. The small cap index contains a lot of smaller “reopening” names, but is overweight small banks.

Banks like inflation, reopening names don’t.

The move is potentially distorted, as what we saw last night was another spike up in the so-called “meme” stocks, including GameStop. AMC Entertainment jumped 20%. There were also rebounds in the likes of bitcoin, Tesla and the ARK Innovation ETFs, suggesting the kiddies are back in force.

What has sparked this renewed frenzy is unclear. At least to those who don’t spend their lives on Wallstreetbets or other platforms. The meme stocks are no longer as heavily shorted as they were when millennials first attacked in January.

It has also been suggested the first episode in January may have been led by a private hedge fund by the name of Archegos, in Pied Piper fashion. Archegos has since gone up in a puff of smoke.

The CEOs of America’s top six banks testified before Congress last night. Questions included matters of regulation and capitalisation but the subject du jour is inflation, about which the most highly respected of the bunch – JPMorgan’s Jamie Dimon – is worried is “getting out of whack”.

The jury remains out on inflation, and while there’ll be more data to evaluate tomorrow night, the jurors may be locked up for some months yet.

Commodities

Yawn.

The Aussie is down a tad at US$0.7745, despite a 0.4% jump for the greenback.

Today

Private sector capex numbers today, as noted.

The Bank of Japan holds a policy meeting, probably to discuss the fallout when the Games are finally cancelled.

The US sees durable goods orders, and a revision of March quarter GDP.

Fisher & Paykel Healthcare ((FPH)) reports earnings today.

AGMs will be held by Costa Group ((CGC)), Coronado Resources ((CRN)), Gold Road Resources ((GOR)), Resolute Mining ((RSG)) and Spark Infrastructure ((SKI)).

The Australian share market over the past thirty days…

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